The Startup Journey

Are Entrepreneurs "their own bosses"?

2009-09-29T02:14:00.000-07:00

From an Knowledge@Wharton interview with Atul Jain, the founder and CEO of TEOCO:

..people sometimes “tell me, ‘I want to be my own boss.’ I tell them that when you become an entrepreneur, nothing could be further from the truth. Every single employee is your boss because if they leave, you have nobody to do your work. Every single client is your boss because they tell you what to do. When you work for a company, you typically have one, maybe two bosses. When you're an entrepreneur, everybody wants to tell you what to do. Your employees will tell you what to do, your clients will tell you what to do, even your vendors will tell you what to do.”

...Part of business success is cost management. We never let expenses get out of line with revenue. The way I explains this is: think of your revenue as an 18-wheeler truck on a highway. It's like a large truck. Then there is another truck right behind it, another 18-wheeler called expenses. Sandwiched between the two 18-wheelers -- revenue and expenses -- is a little Volkswagen called profit. If the revenue truck slows down and the expenses truck doesn't, the Volkswagen gets crushed. If the expenses truck speeds up and the revenue truck doesn't, the Volkswagen gets crushed. I love my Volkswagen. I don't ever want it to get crushed.

...Finally, he says, “Have courage.... It takes a tremendous amount of courage to go into business and it takes a tremendous amount of courage to stay in business. It takes a tremendous amount of courage to stay true to your values because people will challenge them and ask you to compromise them to create a successful business.”

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the Private Equity and Venture Capital ecosystem in India. Click here to learn about Venture Intelligence's products and services for entrepreneurs.

Wanted Fools and Angels! - Article by Sanjay Anandaram

2009-09-18T02:37:00.000-07:00

Alexander Pope’s 1709 “Essay on Criticism” had these immortal lines “…for fools rush in where angels fear to tread”. He was of course referring to the literary critics of his time and, in his time, implied some one who behaved foolishly rather than referring to a simpleton or someone lacking in intelligence as it does now.

Every entrepreneur, observer, VC, analyst and even bureaucrat will tell you that there’s a severe shortage of true boot-strapping capital. The money required to really start off on the entrepreneurial journey. Friends, family and fools (collectively FFF, rather unfairly but with tongue firmly in cheek) provide the initial emotional and perhaps some monetary support for the budding entrepreneur. It invariably takes more than that to demonstrate the venture is capable of taking off.

Ours is a capital starved country. There’s a huge shortage of investment funds in the country. The shortage is on account of regulation and partly in fact as well. Almost all the money invested by VC funds today is sourced from investors outside the country. This directly and indirectly impacts the size of the fund, profile of fund managers, risk appetites, kinds of deals, time-frame for investments and exits, return expectations and the like.

The venture capitalists would rather fund revenue generating companies with at least $1m to $2m for it to be worth their while and that’s just for the very few. A majority want a company that preferably has a full team, revenues, a working business model, generating cash and is close to profitability, if not already profitable. Of late, a few focused seed stage VC funds have emerged that aim to be the bridge between the FFF and the other VCs. But these are the oddballs. While more seed stage funds will undoubtedly emerge, the truth is that securing early stage funding of between Rs 50L and Rs 2 crore is a serious challenge. Which is what most entrepreneurs are looking for.

That’s where angels tread in. Angels are usually experienced entrepreneurs and successful senior executives who invest their own money (unlike VCs who invest out of an investment pool) in very young companies for reasons other than pure monetary returns. They are excited by the company building process and by the opportunity to learn, wish to mentor, believe in the opportunity, and love the team. They provide valuable business advice, referral networks and, of course with the right angels, credibility. As nature abhors a vacuum, angels have emerged in the last few years. Not surprisingly, this coincided with the success of a few entrepreneurs and companies in the last decade or so. They’ve also formed angel groups like the Indian Angel Network and Mumbai Angels. Organizations like TiE too provide a forum for entrepreneurs and angels to connect with each other. But as with the entire Indian entrepreneurial ecosystem, these are early days and the impact of angels and angel networks is yet to be realized.

According to the UNH Centre for Venture Research and PwC MoneyTree surveys, in the US in 2007 alone, angel capital of $27 billion was invested in 57,000 companies! Contrast this with about $30.6 billion of VC capital invested in 3918 companies in the same year. But even in the US, angel capital while being more readily available is still hard to raise. The Indian Angel Network has 80 odd members, has invested about $3m or so in 18 companies.

Data from Angelsoft suggested that in 2008, there were over 300 angel groups accounting for over 12,000 individuals. These groups syndicate deals amongst themselves and entrepreneurial companies get access to more than one group for raising additional capital.

Clearly, there’s enormous room for more angels to participate and the good news is that with the growth and successful expansion of the Indian economy and companies, more and more educated, experienced and aware potential angels are being created. Forums for these angels need to be created (as they invariably will be) where they can learn, understand, network and partner among each other. The government can pass legislation that makes it attractive for companies and individuals to invest in young companies targeting risky high growth opportunities, that are creating interesting intellectual capital or creating jobs.

It is only with the active participation of a very large number of angels who are passionate about creating successful companies in India will this issue of early stage financing be meaningfully dealt with.

What do you think?

Satya Prabhakar on startup hiring and retention

2009-09-03T05:08:00.000-07:00

I attended a presentation on entrepreneurship by Satya Prabhakar, Founder & CEO of Sulekha.com, on August 31 at an event organized by TiE-Chennai and the Loyola Institute of Business Administration (LIBA).

I found the points he made on hiring and retention quite interesting.

He suggested entrepreneurs look out for "5Is" for hiring and 'three 4-letter words" for retention.

The "5 Is"

1. Intellect
2. Initiative
3. Industry (ie, Hard work)
4. Integrity
5. Interpersonal Skills

The 3 4-letter words:

1. Work (i.e., its content)
2. Love ("Am I valued and appreciated here?")
3. Hope ("Is this place enroute to something great?")

Entrepreneurs should not allow an employee to settle into a comfort zone and keep setting the bar higher.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the Private Equity and Venture Capital ecosystem in India. Click here to learn about Venture Intelligence's products and services for entrepreneurs.

Disclosures and Non-Disclosures - By Sanjay Anandaram

2009-09-01T22:02:00.000-07:00

“Here’s a NDA (Non-Disclosure Agreement) – please sign it”, said the entrepreneur. His face fell and he looked almost hurt when I told him that I don’t sign NDAs. It is simply impossible to keep track of the business ideas and plans that get discussed with various entrepreneurs. There are also many ideas and plans that sound and indeed are similar in concept if not in all details. One would open oneself to needless and avoidable complaints about plagiarism and favouritism if NDAs are signed.

So, how does an entrepreneur “protect” his business plan or “idea”?

Every entrepreneur actually believes that his/her business plan is singularly unique and that it will change the world if only capital were made available. While it is important for every entrepreneur to believe in his/her plan, it would be arrogant to assume that no body else has thought about it either.

Most businesses are the types that could be classified as “better, faster, cheaper.” In other words, they take an existing mode of delivering a solution, value-add around this solution by better orchestration of the eco-system, usage of technology and greater operational excellence and deliver “better, faster, cheaper” solutions to existing problems. The real key to their success lies therefore in their ability to relentlessly execute to their plan day after day, acquire customers and be financially viable. There’s little or no real intellectual property in these companies.

On the other hand, there’re a miniscule number of companies that are actually developing fundamentally new business models and technologies that can radically alter existing value propositions to customers. These types of companies tend be staffed by top class technologists and experts from the relevant business domain. Intellectual capital and intellectual property are the bedrock of their existence. Patents are used, among other ways, to fiercely protect their intellectual assets. Even in such scenarios, unless important formulae, critical and unique business processes and crucial algorithms are discussed, NDAs are rarely signed by professional investors.

When one goes to a doctor or a lawyer or a chartered accountant, one doesn’t sign a NDA in spite of discussing deep personal matters. Why? Because there’s a sense of trust and faith and sometimes even helplessness. Their sense of professional ethics prevents them from discussing specifics of a case with anyone else. Similarly, entrepreneurs need to understand that professional investors too have a code of conduct and business ethics that prevents them from discussing specifics of a plan. It is also important for entrepreneurs to have done their home work about the investor and learn how to discuss the details over multiple meetings. In any case, if an entrepreneur believes that the mere disclosure of his/her business plan jeopardizes its prospects, then it is probably too fragile to fund in the first place!

In the case of a public company, the following details are well, public. The capital structure and financials, the valuation, the management team details, the business model, the solutions offered, the kinds and names of key customers, the new strategic initiatives being planned. These companies have to brutally compete in the market where there are rarely any real secrets or at least (short-lived ones).

So why then are private companies so wary about their details? Given that they are private, they are under no obligation to share details; but then even if these details become known, why should it impact the company? After all, investors, key senior employees, key customers and partners will all want to know details of the company to make sure the company is worth partnering with. Details are to be shared with these constituencies and needless and excessive secrecy around the company can only harm it, in today’s day and age. While it is important to keep a healthy buzz around your company, it is important that this buzz be created by happy customers, employees and partners rather than through contrived means.

What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.

Intellectual Capital - By Sanjay Anandaram

2009-09-01T21:59:00.000-07:00

I came across this interesting trivia about the late King of Pop from the “IP Marketing Advisor”: “In the 1988 video of the song Smooth Criminal, the pop star and his dancers leaned forward dramatically, seemingly defying gravity. It turns out Jackson didn’t just invent the move — he eventually patented it. To do what became a signature move in live performances without the help of harnesses and wires, Jackson created a shoe “system” called “Method and Means for Creating Anti-Gravity Illusion.” Granted in 1993 to Jackson and two partners by the U.S. Patent and Trade Office, patent No. 5,255,452 covers a “system for allowing a shoe wearer to lean forwardly beyond his center of gravity by virtue of wearing a specially designed pair of shoes.” A heel slot in the shoes gets hitched to retractable pegs in a stage floor. Wearing the shoes, Jackson (or anyone) could seem to lean past his center of gravity without toppling.

“I’ve used (Jackson’s) patent for years in classes to teach students what they can patent,” says lawyer Gene Quinn of IPWatchdog. Rather than licensing the shoes, Jackson probably sought the patent to keep the effect exclusive, Quinn says. “Just getting a patent may be enough to create marketing buzz in some cases, and he may have achieved that as well.”

There are some interesting points here. One that Michael Jackson a performer and entertainer invented a dance move and that it was patented, that the objective of the patent was to create marketing buzz by promoting exclusivity and that it is important for all to understand the value of an invention. Only then can that invention be monetized successfully.

As we rapidly move into the so-called Knowledge Economy, it is important to understand that information arbitrage can at best provide momentary gains but insights gained from knowledge of a market, process, customers, technology and so on provide long term value. Information arbitrage ceases to lose value when information becomes freely available to all as is happening in today’s world.

So what do startups and entrepreneurs need to do to develop insights?

There are no short-cuts. Insights come from deep and sustained engagement with a market and customers. It means being in conversation with customers, partners, prospects, and sometimes even competitors to understand the problems, opportunities and dynamics of the industry and the business. It means wide reading and talking to experts from industry, research labs and academia about the forces shaping the industry – regulatory, technological, economic and so on. Every entrepreneur in every industry and business needs this kind of awareness to be able to create profitable and sustainable businesses in this economy. Unfortunately, a lot of the entrepreneurs I meet are still hesitant to go out and engage with the outside world. They seem content being in their own company’s silo and view the world from that standpoint. This results in their being unable to see the lay of the land. Many a time, they aren’t even aware of their competitors and what they’re doing, what the sales challenges are, what the hiring and retention issues are, what the customer support expectations are etc. These kinds of entrepreneurs tend to reduce the issue to one of just having adequate money. Money would not solve the problem of ignorance but rather money would be available to those entrepreneurs who can demonstrate their knowledge of the business.

Intellectual capital is not just about filing patents. It is the aggregate intellectual material – knowledge, information, intellectual property, experience – that can be put to use to create wealth in a company.

Here’s an old apocryphal tale that explains the situation. A computer expert billed a company $1,000 for solving an urgent computer problem at a company. The company was livid! How could he charge so much for just 10 minutes of work and for just typing a few lines on the console screen. The computer expert replied “$100 for the 10 minutes of my time and $900 for knowing what to type on the screen to solve the problem”.

What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.

Bharti's "Professional Managed, Entrepreneur Supported" model

2009-08-10T05:31:00.001-07:00

Extract from Sunil Mittal's interview to Forbes India:

When we started out, we were an entrepreneur-led, entrepreneur-promoted company. We did a great job. In some companies, this phase lasts forever. Nothing wrong. But in my view, if you do that, you remain small. You can’t manage a large company using this model. So we moved to the next stage — entrepreneur-led and professional-supported. Over the last four years, we’ve moved to professional-managed and entrepreneur-supported. And that’s where we want to keep it.

There is one more stage — professional-led and professional-supported. Vodafone is in this mould...No single shareholder is dominant...Parts of our organisation were moving to the professional-led and professional-supported model. I had to pull it back because I figured they were becoming too bureaucratic. Things didn’t move; too many approvals were needed; too many emails. That is something we want to avoid...You must feel like the deer in a forest, which is always afraid of being attacked. Else you’re dead.

...Entrepreneurs do it intuitively. For professionals, it is part process and part intuition. When we wanted to outsource our network, it was considered blasphemy. Akhil [Gupta] and I spoke about it many times. I know how many obstacles he had to face to take it through. Everybody was dismissive of the idea. Sometimes, seniors will not only say this isn’t good, they will work hard to ensure it isn’t good. I had to protect him. That’s where the professional-managed entrepreneur-supported model comes into play. I said let’s go...If I were a professional CEO and even if I had the guts to take on the board, I don’t think I would have got the approval. The board would have batted on the safe side.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

"The Valuation Conundrum" - By Sanjay Anandaram

2009-07-20T04:21:00.000-07:00

“How much will my stocks be worth in 5 years?” was the question the senior corporate executive asked the CEO of a startup. “I don’t think my stocks are worth anything now, so I want a big salary raise considering the fact that I’ll be spending the next few very productive years of my working life with you” was the refrain from a senior manager of a young startup. “What will your exit valuation be” asked the junior VC partner to the entrepreneur as if anyone had the answer!

All too often such scenarios play out in young companies. These questions are not easy to answer with any certainty given the state of the company. Yet, these questions need to be addressed. The trouble occurs when these perfectly legitimate questions consume the startup team such that enormous energy is expended in explanations and negotiations with employees and investors leaving the startup shaky before take-off.

It is important to keep some basics in mind.

First, in young early stage startups, valuation is almost entirely subjective. Qualitative issues such as quality of the team, the market size and growth, market opportunity, uniqueness of the offering, the business model, the amount of capital being raised and likely to be raised, the kind of exit, what valuation have comparable companies in similar circumstances received, the competitive pressures on the investor, investor’s investment model etc are factors that determine the valuation. Being subjective, the beauty lies in the eyes of the beholder. However, professional, quality, and smart investors while negotiating hard generally do not squeeze the entrepreneur beyond a point knowing that the key to their success is a motivated and charged up entrepreneurial team. One cannot make money at the cost of the entrepreneur so while starting valuations might seem tough, investors are open to parting with equity if the team executes to the plan. Assuming one has researched the investor(s), there must be some faith in their judgement. At the same time, naivete should not be the cause of being handed a lemon of a deal. You too should be professional, smart and demonstrate understanding.

Second, the qualitative valuation starts becoming more objective over time. So while entrepreneurs fight tooth and nail to secure a “high” or “good” valuation in the early days of their company, what many don’t realise is that having secured this “high/good” valuation, the company needs to execute to justify this valuation. What this means is that the company must demonstrate growth in revenues, cash break even, profits and profitability, productivity and so on. The company therefore has to be aware of expectations and demonstrate its value in financial terms. Of course, there are businesses like Facebook that are valued very high in spite of not having any profits because they demonstrate enormous growth month-on-month and have a visible credible path to making serious money in the future. But these are the rare exceptions. In short, the more mature the company, the more objective will be the valuation methodology.

Third, if the company fails to execute and therefore justify its earlier “high/good” valuation, the value of the company will be re-set to a new lower number in the next financing round. This, while not being a happy moment for the team, is certainly an important reality check. If the company, however, executes to its plan or exceeds it, the valuation will be more than justified and will increase for the next round of capital infusion.

Fourth, at the end of the day, valuation is a number that’s a function of how the company is actually performing and how it is perceived by the outside world. It is the job of the CEO to deliver on both these aspects. Investors invest in the company based on this promise.

Fifth, money is only made when an exit occurs (typically, an IPO or an acquisition) so returns, while looking good on paper thanks to “good/high” valuations, mean something only when cash hits your bank account. Till then, valuations are like money in the mirror – look good, feel good but worthless.

Remember, a “good/high” valuation will only be obtained and realized in cash if a good or great company is built. That should be the focus rather than worrying about intermediate valuation points.

What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.

Qualcomm's QPrize competition for funding business plans in India

2009-06-26T02:40:00.000-07:00

Qualcomm Ventures, a division of Qualcomm, has announced a global business plan competition called QPrize, with the aim of help the winners with funding to translate their business plans into reality. The competition invites entries from India, China, Europe and North America for business plans that accelerate wireless technology development in any of the following business sectors:

* Consumer/enterprise applications and services
* Communication devices
* Semiconductor and component technologies
* Mobile platforms
* Digital media and content
* Healthcare technologies and services
* CleanTech

The deadline for submissions is July 31, 2009. A winner will be selected from each region. These 4 winners will each receive US $100,000 of convertible note funding and will be invited to the Qualcomm Ventures CEO Summit in San Diego, California to compete for the Grand Prize in November. The Grand Prize winner will receive an additional US$150,000 of convertible note funding.

For kore information, visit http://www.qualcomm.com/ventures/qprize/

Blind Spots - By Sanjay Anandaram

2009-06-26T00:37:00.000-07:00

The CEO was a highly qualified and experienced person. He had returned to India over 3 years ago to start a company with his own funds. For family reasons, he had set up his company in a town about 100 miles from Bangalore. He was now struggling to grow beyond the initial customer or two. Customers weren’t comfortable with doing business with a company located in that town; Payments from customers took more time than usual; it was hard to recruit talented people in the smaller town; Communication infrastructure wasn’t the best resulting in loss of efficiency and productivity. It was hard to find people in his town who were aware and knowledgeable about how things worked in national and international business. And that there was no PR firm in his city to help generate visibility for his company. In short, according to him, the reason he was struggling had everything to do with the location of his company.

In the course of the conversation, he also mentioned that his company had built a fairly unique solution for its only real customer; that his customer, a large multi-billion dollar company, was very happy with him and his company; that the customer was in a specific industry vertical that required certifications and regulatory clearances to enter; that there were several other large companies in that industry vertical; that his communication network had improved drastically in the last few months; that two of his family members were involved in senior positions in the company; that his employee attrition was almost zero; that his banker was a well-known private bank with a very large network.

So was it really true that the location of the company adversely affected its prospects or was it something else? Had he leveraged his relationship with his customer adequately – in getting more business, seeking and getting endorsements to secure other customers in the same industry? Were his family members the right people for the jobs they were performing? Had he talked with his bank to understand how money transfers were to be effected so that his account could get credited could be realized almost immediately upon receipt of the monies in India? Had he networked with industry associations and groups in his town? Had he used the internet and the web to reach out to potential prospects who could all be well targeted given the industry vertical?

Turned out that the CEO had done none of the above.

Clearly, the CEO did not really understand what it took to build a business from a sales and marketing and operations standpoint. Yet, he was quick to jump to the conclusion that the problem lay outside his company, in its location! He was uninformed, unaware and prejudiced. There’s a term for this in psychology – blind spot. And all of us have our own blind spots and that’s perfectly OK. The real issue is whether we’re doing anything to discover and address them. For this one needs to analyse the situation on multiple dimensions dispassionately; one needs to also introspect one’s own behaviours, attitudes, and actions. One needs to be open enough to seek, get and deal with feedback from others around. One must watch how others who are doing better are going about the task. Go through the process again. Doing this requires self-awareness and a genuine commitment to improvement.

As in most things in life, the answers to many questions actually lie deep within us. We either don’t ask the right questions or are afraid to ask the questions. Perhaps because our ignorance or more likely, because we’re afraid of the answer?! Which founder-CEO wants to be confronted by answers like “You’re perhaps the bottleneck and not the right person for the job” or “You have no clue about sales and marketing so stop pretending like you know” or “Your attitude is upsetting the morale in the company and no one wants to work here”.

Ready to discover your blind spots? What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.

Dealing With Status Quo

2009-06-20T02:47:00.000-07:00

Last week, I wrote about the entrepreneurial mindset challenging status quo. Challenging status quo and embracing change can take many forms and operate at many levels; but the presence or lack of an entrepreneurial mindset is apparent in the smallest of things or in everyday operating situations.

Here’re two real life examples regarding status quo.

Some years ago, a well known and very experienced Silicon Valley VC was visiting a small and young business in Bangalore that was raising capital for funding its growth in India and overseas. The company was building a high-tech component for the telecom equipment sector. He met the US educated CEO and his team, visited customers and the manufacturing facilities. Everything seemed to be fine with the visit. However, the VC declined to invest. He had noticed that the CEO’s office had typewriters and not computers! He had also noticed and learnt that the CEO’s business card didn’t have an email id, that the secretary took printouts of emails for the CEO to read overnight, respond to by scribbling on the margins and handing over the scribbled upon printouts to the secretary the following morning. In his view, an office that relied on a 100 year old technology like typewriters and which were hardly seen anymore – outside of government offices which aren’t the best examples of innovative or entrepreneurial mindsets – and the way the CEO dealt with email betrayed an unwillingness to change, a comfort with status quo and really reflected the CEO’s own mindset relating to modernization, investments, efficiency, productivity and so on. The company was not able to raise money and is still around, hopefully without typewriters, leading a hand to mouth existence.

A company had ambitious growth plans and so a strong executive team was hired. The company wanted to be run professionally, raise capital and grow aggressively. The executive team shared good chemistry with the CEO and all seemed fine. Then one by one, the newly hired team started leaving. The CEO was simply unwilling to let go of any and all decision making. Every decision had to be taken by him, the minutest details had to be shared with him and he wanted to know everything that was going on. Back seat driving and micro-management were the reasons for the hired team to depart. They felt they weren’t empowered and trusted enough to execute. The CEO was unable to let go, uncomfortable with the new scenario wherein the executives took operating decisions to execute the business plan and he felt left out of the daily action. The CEO, in spite of having an experienced team, felt comfortable only when the company operated in its earlier manner with him in control. The need to balance the CEO’s operating style with the company’s growth plans demonstrated the true extent of his entrepreneurial mindset. Today, the company is still exactly where it was financially several years ago and is unable to hire and retain talented and experienced executives.

Challenging status quo therefore doesn’t necessarily imply doing something radical. It means not only changing the way things have been done but being comfortable with the new ways. Without being comfortable with the new, there’s every danger of the situation regressing to its earlier ways. And that isn’t good for anyone.

In the 19th century, horse drawn carriages were the norm and with burgeoning city populations, city planners used to wonder about ways to deal with the horse dung on city streets. The internal combustion engine put an end to that problem! One cannot operate in the 21st century with a 20th century view of the world. It is necessary to shed or modify old ideas in the light of new signals. These signals come from policies, economies, markets, technologies, regulations, user behaviours and the like and one must, therefore, be receptive to these signals. Interpreting these signals to modify and change for the impending new sets of circumstances is therefore critical.

What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.

Fear of Status Quo? - By Sanjay Anandaram

2009-06-02T02:47:00.000-07:00

I came across this interesting question in an in-flight magazine: What would your life be like if you lived it without any fear?

It started me thinking about fear and how the primal emotion impacted us humans.
To be sure, fear has helped us survive as a species. Early man feared wild animals, for example, and that helped him stay away from them. Fear also played a role in early man’s migration as fear of a place or surroundings forced him to seek out more comfortable environs.

Fear of death or harm also forces radical and unnatural behaviours (fight versus flight) that help ensure survival. Fear also forces our imagination to work overtime in fanciful ways. All of us, at one point or the other, have been afraid to enter dark, silent and secluded areas because of the fear of the unknown. It is the anticipation of a terrible act that causes us to react. Charles Darwin concluded that fear is an ancient instinct that helped propagate the human species.

Fear of the unknown, of rejection and failure also makes us remain with the known, the familiar and within our zones of comfort. The comfort of the known makes us feel secure in our status quos. A known devil being ostensibly better than an unknown one. However, nature has taught us that a species that doesn’t evolve perishes over time. Status quo situations therefore are only temporary zones of comfort.

Mankind’s progress has occurred because the desire for adventure, exploration, knowledge and learning, challenging, inventing, discovering and conquering has trumped fear of the unknown and the contentment with status quo. Continents, oceans and space have been, are and will continue to be the domains for man’s indomitable quests to know what’s on the other side. While these quests were initiated by the most intrepid of dreamers, they were followed by many others to chart new worlds.

The European exploration and conquest of the Americas started off in the 15th century thanks to the efforts of a man who went against the traditional wisdom of his day. In the late 15th century, Ferdinand and Isabella, monarchs of Spain, funded Christopher Columbus’ wild idea of an expedition westwards across the seas to India. Columbus was to keep about 10% of the profits made on the trip. Perhaps the first known example of a venture capitalist and entrepreneur!

Most of the fears of our ancestors have been today conquered by knowledge, reason, courage, conviction, wisdom and experience. Fear is slowly conquered by knowing more and more about any matter. The only way to know more and more is to jump into inquiry or the activity whole-heartedly. After all, while theory has its value, the only way one learns swimming is by being in the water, choking, trying and then finally mastering the art.

Intrepid men have challenged dogma, battled socio-cultural mores, traveled where others didn’t and even taken on and defeated extremely powerful empires. Think Mahatma Gandhi, for example. He walked a path that was uniquely his, challenged the mighty British empire by mobilizing millions, talked of and walked his talk on social emancipation of the downtrodden, displayed exemplary personal conviction, courage and shrewdness in dealing with nay-sayers and dissuaders of whom there was no shortage. He believed that fear was not a disease of the body but of the soul. That while fear had its uses, cowardice had none.

In the darkest days of The Great Depression in America in 1933, Franklin Roosevelt in his inaugural address as President said “…first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.”

Yet, why is it that most of us tend to be afraid? To take decisions, to go against an established orthodoxy, to challenge status quos in our daily lives? Government bureaucracies (especially ours!) have for long been known to not just favour but to positively revel in maintaining a status quo. Executives in companies are happy pushing paper confusing activity for progressive movement leading to new outcomes.

Are we then simply afraid of the socio-cultural-economic consequences of trying something new? Is the system designed to protect status quo and punish those who challenge it? Or are we just too content, lack motivation and curiosity? Do we lack courage, conviction and confidence, the desire to learn and explore? If we are, then we should be really afraid for our future is bleak!

An entrepreneurial mindset is one that challenges the status quo.

What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.

The Importance of Growing Up - By Sanjay Anandaram

2009-05-28T00:22:00.000-07:00

Startups thrive in an environment of chaos where multiple tasks are done, undone and re-done often times guided by just a leap of faith. Decisions are taken in quick time without long (boring?!) meetings typically by a small team of extremely committed and passionate people. Systems, processes and procedures are considered inhibitors to their competitive advantages of speed and innovation.

But as the startup grows, the lack of systems and processes start inhibiting growth; indeed, the company can implode before long without adequate attention and focus on having and implementing systems and processes. These processes and procedures relate to every functional area of the startup and these functional areas cannot scale, operate efficiently and effectively without the right systems. And the management team cannot manage the growth of the company if they cannot measure and track activities, people, money, time, contracts and documents among other things.

As the startup matures, expectations from various stakeholders only increase. For example::
- Does the CEO know the sales, receipts and payables position of the company on a daily basis? Does he have visibility into the cash-flows of the company for the foreseeable future? Are receivables being tracked age-wise and managed? And payables? Does he know what are all the deposits that the company has paid, to whom and when they’re due? What’s the policy for transferring money and issuing cheques?
- How are departmental and company performances tracked and discussed? How often?
- Does every employee have a job description with a clear position on the organization chart? Are employment contracts in place? Is there a hiring, firing, performance appraisal and management, promotion, training, compensation and benefits system in place? What is the system for dealing with employee travel and entertainment expenses? Is there a new employee induction programme – so important for ensuring the comfort of every new hire?
- How is customer service organized, tracked and measured? What’s the system for dealing with refunds and returns?
- What’s the effectiveness of marketing? ROI on campaigns?
- How’s sales organized and measured? What’s the incentive structure for direct and indirect sales?
- Are all the assets of the company documented (including intellectual property) and physically verified? Are maintenance contracts in place for say, the computers? What’s the inventory situation?
- Is there a system for authorizing travel, approving expenses, investments, payments and the like?
- Are there contracts governing partnerships and vendors or are just handshakes and phone calls substituting? Are these contracts still active or do they need reviving? Do the contracts need to be renegotiated keeping in mind the changed circumstances of the company?
- Are statutory requirements being complied with – board meetings and minutes, registrations and licenses, taxes, filings with various regulatory and statutory authorities?

All too often, startups do not pay attention to the need for creating the soft infrastructure within the company for growth. It is not surprising therefore to see most startups flounder after achieving initial success. The capabilities within the company need to be continuously enhanced if the company is to reach subsequent levels of growth with each level being built on a strong foundation. Stronger the foundation, higher the levels. The foundation in turn is determined by the company culture and the quality of the people. The culture must value discipline, diligence and data. Discipline to ensure that systems and procedures are implemented and followed; Diligence to ensure that the systems are continuously working as they should across the company; Data to ensure that the quality of decision making goes beyond pure leap of faith.

Making the transition is not easy. Juggling growth, investments, customers, partners and investors takes up time and energy – systems and processes therefore take a back seat. And then one day, there’s panic! The management has lost its grip on the business with no idea of the finances, customer, employee and partner issues. The company is ripe for an implosion.

However, as with all things, timing is critical. In addition, different systems are required for dealing with different stages of growth. But what is always required from day one is the realization that systems and processes are critical elements of soft infrastructure for the startup.

To realize and to act requires the startup CEO to start thinking like a grown up CEO.

What do you think?

2009-05-20T23:38:00.000-07:00

Private Equity and Venture Capital investors, who have invested over $2 billion into Healthcare & Life Sciences (HLS) companies in India over the last five years, are keen to step up the pace of investments in this industry. Over 42% of PE & VC investors surveyed by Venture Intelligence, a leading research firm focused on Private Equity and M&A deal activity, felt there was a strong opportunity to tap the market for healthcare services in semi-urban and rural areas.

The investors also identified Diagnostic Services, Medical Devices / Equipment, Hospital Chains and Wellness Products and Services as their favorite sectors for investments within the HLS industry. The detailed results of the poll will feature in the Venture Intelligence “Private Equity Pulse on Healthcare & Life Sciences” report to be published next month.

Click Here for more information.

CEOs contesting polls: Conflict of Interest?

2009-05-05T00:03:00.000-07:00

Julius Caesar the great Roman emperor divorced his wife Pompeia as he considered his honour and position compromised because Pompeia was indirectly associated with a trial for sacrilege. He explained that his wife should not only be free from sin but from suspicion. Given the state of our political system, this kind of requirement seems laughably quaint. But if the system is to improve, keeping this principle in mind is crucial because it is a pre-requisite for good governance in the political as well as the business spheres.

In the last Indipreneur column, I had talked about the need for more entrepreneurs to enter the political sphere. But, and there always are buts, this comes with a significant caveat. The caveat of suspicion of “conflict of interest” becomes therefore especially applicable to those entrepreneurs who’ve decided to be in public service. Our courts which enjoy enormous credibility amongst other institutions in India have a well established system in this regard. Recently, in the case of Ajmal Kasab the Mumbai terror accused, judge Mr M L Tahiliani debarred lawyer Anjali Waghmare from defending Ajmal Kasab on grounds of conflict of interest since she had accepted the legal brief of a surviving witness in the Mumbai attacks.

It would be rather unprecedented for a CEO of a startup that’s in the process of finalising its initial funding to suddenly declare that he would be involved in another venture in an altogether different area and that he or she would be able to do justice to both adequately. Both the existing startup and the new venture call for passion, active and intense hands-on involvement if they are to truly deliver on their promise. The new venture will require the CEO to spend over a 100 days a year in another city and spend an enormous amount of time catering to a totally different set of stakeholders than in his startup. On what basis can the respective stakeholders believe that the CEO will deliver on the promises in spite of the enormous pressures and constraints? Now, what if the new venture was politics and that the CEO was standing for elections with the hope of becoming a Member of Parliament?

Stakeholders want to see focus and be confident that the person in charge is concentrating on delivering the best possible results for them. In addition, people around the world frown upon the CEO having multiple interests especially when there’s enormous potential for serious conflicts of interest issues to arise.

Good governance requires interested parties to recuse themselves from being involved in any situation or decision that can cause a conflict of interest. For example, can a CEO be part of the committee that decides on his own compensation? Can a CEO be involved in writing his own appraisal or that of a subordinate who’s a relative? Should a CEO do business with a company run by family member or a very close friend? If so, what should be the safeguards? Is the relationship at an “arms length?” to address concerns of conflict of interest and prevent suspicion? Increasingly, companies are realizing the virtues of being transparent and above board. Entrepreneurs in politics will hopefully bring about the much needed impetus to the issue of good governance. An issue that cannot be overstated. Therefore, they need to set the standards for the rest of the political system to follow.

Mr Rajeev Chandrashekhar is well known as the founder Chairman of BPL Mobile. He’s a Rajya Sabha MP from Karnataka and currently Chairman of Jupiter Capital which has interests in infrastructure (transportation, logistics, utilities, aviation, electricity), defence technology and media. His company is developing the first non-metro greenfield airport in Karnataka at Hassan. Mr Chandrashekhar is backed by the BJP the current government in Karnataka.

Mr Vijay Mallya Chairman of Kingfisher Airlines is a Rajya Sabha MP and on the Parliament Consultative Committee on Civil Aviation.

Captain Gopinath founder of Air Deccan (merged with Kingfisher Airlines) is now the founder CEO of Deccan Express Logistics which is in the process of raising Rs 300 crore in initial funding out of a total estimated Rs 1000 crore over 3 years. The business of logistics and air-freight involves central and state government regulations. Captain Gopinath is a Lok Sabha aspirant.

There are potential conflicts of interest in the above cases. Shouldn’t the principle of Caesar’s wife be applicable? Can the CEO do justice to two sets of diverse stakeholders (employees and investors in one and the general public in the other) without compromising one or the other?

What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.

Entrepreneur pitching to VC: Reality TV-style

2009-04-27T05:55:00.000-07:00

CNBC-TV18's Enterprise Inc. show has an interesting Reality TV-type video of an first-time entrepreneur pitching to an angel investor.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the Private Equity and Venture Capital ecosystem in India. Click here to learn about Venture Intelligence's products and services for entrepreneurs.

Nominate Indian Startups for The World Economic Forum's Tech Pioneers Program

2009-04-27T04:19:00.000-07:00

Startup Journey is happy to invite you to nominate companies you are associated with in India to The World Economic Forum's 'Technology Pioneers' Program 2010. The Program, started in 2000, with the goal of identifying new technologies that will have a dramatic and sustainable impact on business and society, has achieved the distinction of being the most prestigious recognition in the world of technology.

Last year, Bangalore-based mobile payments company JiGrahak Mobility Solutions was selected as one of the 34 "Technology Pioneers" for 2009. Another tech firm that does a lot of its development out of India - Nivio - was also named.

To be selected as a Technology Pioneer, a company must be involved in the development of "life-changing technology". In addition, it must demonstrate visionary leadership, show signs of being a long-standing market leader and its technology must be proven. WEF solicits nominations for the Technology Pioneers program from Technology Pioneer alumni, WEF members, partners, entrepreneurs, innovators and other technology experts.

To nominate a candidate please fill out the form available at
http://www.weforum.org/en/Communities/Technology%20Pioneers/Nominations/index.htm

Please note that once a nomination is accepted, a detailed application form will be sent to the contact person in the company.

Successful candidates will be notified in October 2009 and the class of Technology Pioneers 2010 will be officially announced to the public via a press release on 3 December 2009.

Links to more information on the Process & Criteria:

http://www.weforum.org/en/Communities/Technology%20Pioneers/Nominations/AbouttheProcess/index.htm

http://www.weforum.org/en/Communities/Technology%20Pioneers/SelectedTechPioneers/index.htm

http://www.weforum.org/pdf/techpioneers/TechnologyPioneers2009.pdf

Work-Life Balance. What's That?

2009-04-27T03:15:00.000-07:00

Jason Nazar, founder CEO of DocStoc.com, has a great post on the "The Unintended Consequences of Startups" that a lot of entrepreneurs can definitely empathize with (and hopefully learn from). Hat tip: StartupDunia

It took me a while to admit that I was stressed out, and even longer to realize I would turn to food to compensate for that stress. Over the past year, I’ve become a more solitary person with my thoughts and emotions than I’ve ever been, while increasingly becoming a public figure who’s known as an outgoing social networker and showman. It’s a strange dichotomy.

My family has been both incredibly supportive but also upset that I’ve seemingly disappeared. I have three (quite) older siblings, and we’re undeniably close. But while they’re all proud of me, they disapprove of my unbalanced lifestyle. My brother and I share opposing sides of duplex, he’s literally a wall away from me. But I can often go 2 weeks without seeing or talking to him. My sisters are busy raising their kids, so they can relate a bit more. But like so many others, our conversation often come back to them asking me “why don’t you ever want to talk about what’s going on in your life”.

...I think I’ve reached my breaking point, at least for now, and mostly in regards to my health. Somehow I know my relationships will work out, but I often find myself feeling like I’m working at 40% of my capacity and energy, and I think its due in large part to poor physical habits.

"Wanted: Entrepreneur Politicians" - by Sanjay Anandaram

2009-04-21T02:51:00.001-07:00

As the cliché goes, the world’s largest exercise in democracy kicks off yet again this week in our country. Hope, hopelessness and cynicism are the constant emotions accompanying this exercise. The political class appears determined to demonstrate new lows in venality, criminalization, corruption and crassness. Competitive one-upmanship in making empty, patronizing, platitudinous, parochial, narrow and sanctimonious statements of intent is the order of the day. Civil society is battling away slowly and doggedly. But change is very frustratingly slow to come by thanks to the twin deadweights of our fossilized justice (viz. police, courts, laws and legal procedures) and administrative (eg. defence procurements to social project implementations to securing a driving license) systems.

Social and political change has always been brought about by visionary and charismatic leaders (Gandhi, for example) who could articulate that vision such that it mobilized vast numbers of people towards achieving seemingly impossible goals. Less daunting but nevertheless very impactful changes have been brought about by public minded and powerful people – think Jamshedji Tata (eg. IISc in Bangalore, the counry’s first labour association at Tata Steel in 1920 with collective bargaining, creation of the city of Jamshedpur). While it appears impossible that a Gandhi will emerge again anytime soon, it is possible that many first generation entrepreneurs like Jamshedji Tatas will emerge in the near future given the changing circumstances of India and the world around it.

First generation entrepreneurs are not businessmen in the traditional sense. As entrepreneurs, they’re driven by the desire to change a status quo, to upset the applecart as it were. The financial rewards are a derivative of the successful conversion of that desire into action. Businessmen are less concerned about changing the status quo (in many cases, preferring a status quo and the cosy crony capitalism that comes with it) than with making money. First generation entrepreneurs are not constrained by lack of resources but creatively leverage resources through their imagination, will power and obsessive passion to succeed. Subsequent generations do not have to grapple with this mismatch between aspirations and resources and then tend to focus more on managing the bottom lines than in participating in “risky” endeavours like engaging with the political class to effect social change.

If one looks at the political landscape today, one sees film-stars, criminals (both convicted and yet to be convicted), businessmen, people with sectarian, religious and regional interests, and some with genuine public minded agenda for change. There are no entrepreneurs yet in our system unlike in the US, the most powerful democracy. The reason for this is that there aren’t quite as many successful first generation entrepreneurs yet in our country and the few that fit the label have been wary of engaging with the system given their initial experience. India however has many political entrepreneurs but not enough entrepreneurs in politics!

The attributes one would look for in the political leadership today would encompass the following:
- an agenda for the country that will help it achieve its “tryst with destiny”
- an articulated time-bound set of actions towards fulfilling that agenda
- a qualified, passionate, hard-working, honest and experienced team
- confident yet humble
- decision making in the larger interests of the country, not hostage to narrow cynical agendas
- willing to engage with the world around them to actively promote the agenda
- develop partnerships and alliances in furtherance of this agenda
- a belief in meritocracy while providing opportunities for all
- fighting injustice through the creation of effective and efficient systems
- being transparent in all dealings
- in touch with ground realities and with the citizens

In short, an entrepreneurial mindset is required where personal ambition is subservient to the larger goal of building a successful company. Where competence is valued more than loyalty. This is an important point to keep in mind because “I want to be the Prime Minister” is like saying “I want to be the CEO” but both are rather different from saying “I want to be part of building a great country or company”.

What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.

Private Equity appetite for slowdown-resilient Education Cos. soars

2009-04-14T00:02:00.000-07:00

Press Release

Over 80% of Private Equity and Venture Capital investors surveyed by Venture Intelligence in its newly released “Private Equity Pulse – Education” report, plan to make an investment in Education companies during the next 6-8 months. With an estimated $40 billion market for private institutions and a CAGR of 8.6%, it is no surprise that PE & VC investors are looking to ramp up the 30 investments (worth over $300 million) they have already made in Education-related companies, the Venture Intelligence report indicates.

“In the current uncertain economic environment, the attractive and predictable rates of return of the Education industry, is serving as a magnet for PE investors,” points out Arun Natarajan, CEO of Venture Intelligence. “In fact, in another poll which we had done in end 2008 among PE investors, Education had received thrice as many votes as the next favorite sector in terms of attractiveness for investments in 2009,” Mr. Natarajan added.

Despite the overall optimism, investors have their own set of concerns, the topmost being the regulatory uncertainty surrounding “for profit” ventures in the K-12 and higher education segments and the lack of scalability of ventures in “non formal” segments. Over half the fund managers surveyed by Venture Intelligence felt that regulatory hurdles are a significant deterrent to the free flow of investments into the Education industry. The lack of quality teachers and political interference also figure in the list of concerns.

Entrepreneurs, by their very nature, are optimistic and resourceful. And those interviewed in the PE Pulse report seem confident that the constraints facing their industry can be overcome. For instance, Vinay Pasricha of Wigan & Leigh College (India), a vocational education firm that has raised Private Equity funding, feels there is enough scope to create scale in the unregulated segments of the industry – both within and outside India. "Tell me a sector where you do not face regulatory uncertainty," he asks adding that "Education, apart from healthcare, is the only mass growth opportunity that will continue to flourish during any economic downturn”.

Incisive Articles
The report features an article by a team from The Parthenon Group highlighting how investment opportunities in India’s education industry can generate high returns even in an unfavorable economy. Leading Private Equity firms like India Value Fund and Sequoia Capital India weigh in with their thoughts on the Higher Education and the Tutoring segments respectively. Dushyant Singh, Director (Strategic and Commercial Intelligence) of KPMG's Transaction Services practice, elaborates on one of the most exciting segments: the Kindergarten-to-Class 12 segment (K-12).

Will the boom in for-profit education ventures benefit only the economically better off sections? In her article, Reema Shetty of Kaizen Education Fund, assures us that there is no conflict between delivering high quality inclusive education and providing high returns to investors. Vignettes from PE-backed education ventures in other countries, highlighted in another article, also support this.

Given the significant regulatory challenges facing the industry, this report also features the expert views of top corporate law firms - ARA Law and Dhir & Dhir Associates.

For the convenience of entrepreneurs, the report provides a listing of Private Equity and Venture Capital funds keen to invest in this industry. A directory of investment advisory firms, who provide value-added intermediation services with a special focus on Education, has also been included.

The Private Equity Pulse on Education can be downloaded from the Venture Intelligence web site on http://ventureintelligence.in/pepulse_edu.htm

"Entrepreneurial MBA - An Oxymoron?" - By Sanjay Anadaram

2009-04-04T06:24:00.001-07:00

An increasing number of universities and colleges are offering courses in “Entrepreneurship” as part of their business education. Around the world, business plan competitions are held by academic institutions at regular intervals. The wide publicity given to “entrepreneurship” in recent times has resulted in entrepreneurs gaining respect and being acknowledged as critical participants in a country’s economy, wealth and job creation.

But does taking a course or two in entrepreneurship while pursuing a business degree make one a better entrepreneur? My own view conditioned by many years of experience is that a business degree, with or without courses in entrepreneurship, is not material at all. Then are all these courses useless? Well, no they’re not! They’re useful for learning and understanding multiple aspects of entrepreneurs and entrepreneurship but don’t, in any way, make one a better and successful entrepreneur. A small percentage of any population become entrepreneurs while the vast majority become employees. There’s nothing good or bad or right or wrong about this – it is just the way it is and indeed should be as both entrepreneurs and managers-employees perform complementary activities in the growth of an economy.

It is said that entrepreneurship cannot be taught but it can be learned. And what better learning environment than the real world, through interacting with other more or differently experienced entrepreneurs, customers, investors, partners and suppliers?

Entrepreneurship is not a traditional discipline with theoretical constructs unlike say, engineering where one needs to spend many years in a classroom learning the sciences and mathematics. Entrepreneurship is more an art therefore than a science. The study of entrepreneurship offers opportunities for researchers and academics though! One doesn’t, for example, learn swimming from reading books in a classroom but by being in a swimming pool with the help of a coach. But even the best coach in the world will not and indeed cannot prevent the novice swimmer from unintentional and painful swallowing of water the first few times! Without that experience of “drowning”, learning from others and then through rigorous practice, it is impossible to be a quality swimmer.

In countries like India, most students doing their MBA have no or little work experience. Their ability therefore to spot opportunities, appreciate scenarios, develop and leverage relationships is limited compared to those with experience. It also doesn’t help that academic institutions in India are insulated from industry, entrepreneurs and the entrepreneur eco-system.

Yet, why are investors almost always are biased in favour of entrepreneurs with degrees from well known business schools? The reason is that, all other things being equal, the degree is a filter – demonstrates that the holder has passed other stringent selection criteria. It is obviously not perfect. On the other hand, many professional investors and many senior executives in the corporate sector are usually business school alumni so having a degree leads to membership into alumni networks that can be leveraged by the entrepreneur. Business schools teach students to analyse situations and excessive analysis leads to paralysis. Business schools teach students to manage risks. Business schools, however, don’t teach students to take risks while solving problems and addressing opportunities because risk-taking cannot be taught. In real life, decisions are taken with incomplete information with imperfect people being involved. Decisions are taken on a “leap of faith” basis and persevering when all analysis suggests otherwise requires self-belief and conviction. These cannot be taught in a class-room situation. They can only be learnt through experience, introspection and with the help of a mentor.

Now here’s an exercise worth doing. Business school education in the US is about 100 years old and about 45 years old in India. During this time, how many “successful” companies, across all sectors of the economy, were founded by MBA entrepreneurs in either country? “Successful” meaning wealth creators and not lifestyle income-substitution businesses like consultancies. I believe that this number would be a very small fraction.

Keep in mind therefore that while there are many attributes of a successful entrepreneur, having a MBA isn’t one! What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.

Do's and Dont's for your Board - By Sanjay Anandaram

2009-03-19T23:03:00.001-07:00

You’re delighted to have successfully raised capital. You can now execute the plan and grow the business. One of the first things you do is hire senior sales and marketing people. You negotiate their compensation with them and are about to issue an employment contract. Then you remember that you’re supposed to get the approval of the board before hiring certain categories of people. The board does not approve the hiring. You feel humiliated, dejected and angry. The board is upset that you didn’t consult them before taking the decision to hire. Soon, the relationship sours.

You get irritated and annoyed with some board members because of the enormous micro-managing that they do. It seems that every little decision needs to be run past the board leading to frustratingly long decision making. In addition, you feel upset that you are no longer the driver of the company but just enacting someone else’s decisions. Not a conducive environment for a company to blossom in.

First and foremost, it is important to realise that accepting capital from an investor will lead to their taking board seats in your company. Often times, your company might not even have a board! So a board will need to be formed and board formalities and procedures as enshrined in the shareholders’ agreement will need to be followed. Having a board is supposed to serve several purposes. These range from corporate governance (“Is the company compliant with the law?” “Is the largest vendor to the company also the CEO?” “Is the company being run effectively and efficiently?”) to financial discipline (eg. regular reporting of financial data and management analysis thereof) to advice, counseling and develop and leverage relationships.

It is important to understand that there needs to be total transparency and trust in the relationship between the board and the entrepreneur CEO. This implies that information is shared in advance often times going beyond the legal obligations of the agreements. Bad news is to shared before any good news (“we just lost our best sales person” or “we lost two big sales orders this week” to “we will not be able to meet our numbers”) and not camouflaged if trust is to be developed. The guidelines of operation need to be also discussed and understood between the two parties.

Back-seat driving is to be avoided by the board members by constantly advising the CEO about each and every activity. Another no-no is micro-management where, say, the CEO is questioned on the compensation being paid to each and every individual in the company or requiring approvals from the board even to buy office stationery! This is absolutely not good for the company. The CEO needs to be polite but firm in case the board members demonstrate back-seat driving and or micromanagement. It is usually useful to have frequent meetings in the early days to ensure that both parties are comfortable with the protocol being followed.

The entrepreneur needs to therefore be very careful prior to accepting money from an investor. As mentioned before in these columns, it is imperative for the entrepreneur to do QCs (quality checks) on VCs! Not just on the firm but on the individual member of the VC firm who will be dealing with your company. There needs to be due diligence by the entrepreneur as well on the investor as well.

It is a good idea to have a mix of investor, founders and outside independent directors as board members in the company. Having an odd number of members helps break any deadlock. Usually, 3 to 5 members is sufficient for a young company. Independent directors are usually compensated with some stock or cash or both. It is a good idea to have some stock compensation as it aligns the interests of the board member with that of the company. The board should demonstrate maturity, agility and skill set in decision making that’s relevant to the small growing company. Having the right balance in the board is as important as having flexibility as well since many times, things don’t go according to plan. There needs to be an understanding of the business, the entrepreneurial situation and a realization that no business plan is cast in stone. There needs to be flexibility and adaptability by the board to the changing situation inside and outside the company.

What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.

Keeping Commitments in a Downturn - By Sanjay Anandaram

2009-03-07T02:52:00.000-08:00

The current economic environment is naturally forcing companies to watch every paisa of their cash-flows and pounce on any and every opportunity to either save money, defer payments and/or increase inflows. Often times, such hawkish behaviour can lead to a situation where commitments are reneged. For example sample this question from the CEO of a young company “Should we trim or stop the variable payments to our employees during the current downturn?”

At the time of joining the company, employees had been promised variable payouts based on their performance. Accordingly, all of them were expecting some payouts as no one believed they weren’t deserving of any performance payout! Now, the company was struggling to make ends meet and wanting to make the cash in the bank extend many more months. The employees clearly were aware of the situation not just in the company but outside as well. What should employees do in such circumstances?

In addition, given the environment all around, performances by the employees came in below the previously agreed upon metrics that would have made them eligible for performance payouts; In spite of their very best and sincere efforts. So, wasn’t some money due to them? Especially since a pay hike was extremely unlikely?

It is in times such as this that the character of the company’s leadership is demonstrated. There needs to be a fine balance between keeping commitments by rewarding performance and ensuring longevity of the company’s prospects. It is not uncommon for many companies to use the downturn to stop all variable payouts. After all the employees didn’t meet the performance goals as agreed upon, right? It is less common for companies to take the employees into confidence by sitting down with employees and explaining the scenario faced by the company. And asking the employees for their views and suggestions. Many times, employees themselves would offer ideas and perhaps even forgo some payments. In some cases, the leadership can re-negotiate the payout time period – effectively asking for more time to pay. It is also critical that the employee at the lower rungs of the corporate ladder feel the least pinch. For this, those above have to take a larger share of the pressure. And for them to do so uncomplainingly, they need to feel they have an obligation and a right towards ensuring the company’s future. Creating this culture within the company is again evidence of the calibre of the leadership team. Trust in the company and in its leadership are therefore critical requirements for the creation of this culture. Unfortunately, trust usually becomes the first casualty in times of crisis. Again the quality of the leadership determines this.

Commitments are also made to customers, partners, vendors, and the board. Each of these commitments comes under severe scrutiny during times such as the current one. Being open and taking each of the constituencies into confidence before working out a solution is important. The solution could range for example, from renegotiating terms for the current period and agreeing to make good the loss when the times improve to extending the period of the relationship thereby ensuring that the partner or customer gets additional periods of value at lower unit spends to many more innovative actions. After all, necessity is the mother of invention!

Reneging on commitments is a moment’s job while repairing reputations can take a lifetime, if at all. Commitment to commitments is noticed and people will pay attention to you and to the company. As someone said, the only way to convince everyone that you are ready to improvise, innovate and find a solution in a fair and honest manner is actually do it. Character, value systems, ethics and fair play are what are at stake in such circumstances. Great companies are built by great leaders who demonstrate these attributes every day. Company cultures are built each day at a time. Humility, confidence and will power are what will be called into play at such times when short cuts seem all too obvious a recourse.

So what do you think should be done to deal with employee performance payouts?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.

Diversity in Hiring? - By Sanjay Anandaram

2009-02-24T02:32:00.000-08:00

One of the things that intrigued me when I visited a startup recently was the amazing conformity and homogeneity on display. Most of the team members were from a particular community, from a particular part of the country, had studied in the same set of colleges and had worked in similar roles in similar companies prior to this startup. Only two of the more than 15 members I met did not conform to the profile of the majority. The CEO subsequently mentioned that one of them had resigned and was on his way out soon while they were looking for a replacement for the other.

The above may not be a very typical case but it is also not atypical. Companies are started by people who share a certain set of common bonds and vision. These common bonds are a function of backgrounds, gender, age, education and prior experiences. In addition to these bonds, there are other bonds e.g. of community. The bonds of community are generally perceived to provide something that the other bonds don’t. Namely, that of trust and loyalty. There’s an implicit assumption that people of the same community can be trusted with confidential information about the affairs of a company. There’s a self-policing and self-supporting mechanism at play that has history, family and social forces behind it. It is therefore not unusual to see strong representation of members of a community in businesses where these values are prized above all others. For example, the Jain community in the diamond trade, the Reddy community in real estate, the Marwari community in jute. Even where there are professionals employed by the business, the reigns of the company are in the hands of members of the community. Several Parsi founded businesses are a case in point here. The former Satyam board and executive leadership too were heavily biased towards Andhra members.

However, there’s a difference between loyalty and competence. Between a professional attitude that keeps the company’s interests in mind and respects all and clannish attitudes that tend to favour those from a particular group. Diversity is an important element in hiring. There’s strong empirical evidence that suggests that a diverse workforce is more innovative and productive. Silicon Valley in particular and the US in general are great examples of the success of diversity. Meritocracy has no skin-colour or community. Having homogeneity and conformance mindsets is not very conducive to innovation but more suited for say, ordered production and shop floor environments. Less diverse workforces in say Germany and Japan therefore are far less innovative than the US. Look at the top leadership of US companies and the top leadership elsewhere for another view of the role of diversity in workforces. One of the big challenges for our IT services companies is create and manage a diverse workforce as the world they inhabit becomes increasingly global. Equal employment opportunity and wanting to hire the best for a role are complementary.

India is fundamentally a very diverse country and therefore as our country, minds and attitudes grow, the workforces in our companies will increasingly reflect this. Startups too should keep this issue of diversity in mind especially if they’re to innovate. Hiring should be for the job as opposed to fitting a person into a job. For example, there’s a tendency for some youth oriented businesses to hire young people for various jobs under the assumption that they would appreciate the customer and company better. These companies tend to confuse youth with youthfulness. Most of the great youth oriented businesses like MTV, Disney, Virgin Mobile are in fact run by “boring” old people who are youthful!

As Mitch Kapor, founder of Lotus, says: One must be careful not to create mirrortocracies in place of meritocracies. Mirrortocracies are companies where people tend to hire people like themselves as opposed to hiring the best people for the job. The company will inevitably suffer as a result. Hiring and sustaining a diverse workforce requires an open company culture, transparency in decision making and equitable governance. We need to take steps fast in that direction.

What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.

Attracting and Retaining Talent - By Sanjay Anandaram

2009-02-19T20:13:00.000-08:00

When I was asked to write an article on the broad topic of attracting and retaining talent for the Journal of the National HRD Network I became anxious and nervous (of course I displayed nonchalance!). What could a layperson like me write about on the topic that the experts already didn’t know? It would be presumptuous of me to suggest tools and techniques to those who practiced the difficult and thankless jobs of “HR”. So I decided to write about the issue straight from the heart and head on because I believe it needs to be said. So here goes.

“I want to join this company. I believe it is an exciting opportunity for me, I’ve researched the space the company is in and its value proposition resonates with me. I’m not looking for short term gains; in fact, I’m willing to take a significant pay cut to join the company and to make money only through stock if the company does well. I think this is a great chance for me and I just have to work for this company.”

The above is not out of any comfortable dream of the average harried HR professional in today’s India but words actually spoken by a MBA with 8+ yrs experience gainfully employed by a well known MNC bank who I was interviewing for a no-name startup that I was on the board of. A company with 6 people, no revenues, and little money. In fact, the candidate being interviewed had found out about the no-name startup and had written seeking employment.

Well, what it drove home to me was the importance of an exciting vision for the company, a chance to make a difference, a meaningful contribution, the freedom of being able to operate without bureaucracy, to be part of the potentially explosive growth of this company right from the get-go to attract talent.

The reason this is important is because we are dealing with “people”. Not neutral, emotionless, bland things called “talent” or “human resources”. People have dreams, passion, aspirations, energy, drive, knowledge and the ability to learn and unlearn. And in my humble opinion, it is critical to realise this and then design the work-place and the work itself to cater to these emotions and abilities.

The current problems of lack of “talent”, “India’s skills famine” and the consequent “war for talent” are well known and are being dealt with by various experts in various ways e.g. training, poaching, and the like. But I believe these issues will continue to plague us unless we deal with basic realizations.

I’m not making the above statement for shock value. Well, OK, a little, but there’s a serious under-current to the statement that is relevant, going forward, to the whole business of managing people in organizations.

Today, in times of need, how many employees look upon the HR department as the place they would turn to for help, assistance, and counseling? HR is still largely seen as a department that is the hatchet arm for implementing organizational policies. HR managers are the favourite whipping boys for the rest of the organization. This is unfortunate as they have to function in the 21st century within a “HR” structure that originated in the 19th!

A new approach is needed. Let me explain.

Management of people and businesses as a practice really began around the beginning of the 20th Century - thanks to the changes brought about by the Industrial Revolution. The organization of labour, the creation of factories, the setting up of assembly lines and the like required the “creation” of tools and practices to efficiently manage labour as a critical factor of production. Given the wrenching social changes caused by the Industrial Revolution and the socio-economic situation of the times, it is fair to state that labour was perceived as another resource or input to production that had to be “efficiently managed”. The early studies in so-called “scientific” management that lead to the assembly line (essentially breaking down a job into its smallest components each of which would be worked on by a set of separate workers as the job moved from one end of the line to another) provided an intellectual context to this need for labour management. Learning curves of workers, the efficiency and productivity of labour was measured to enable its management. Different theories of organizational behaviour regarding the managing of workers emerged and the so-called Theory X (“carrot & stick” style) and Theory Y (“empathetic”) styles of managing workers became popular.

In fact, terms such as Personnel Management or Industrial Relations or Labour Relations permeated the lexicon not just of “industrial” organizations but also of premier educational institutes that taught students the intricacies of managing “labour”. The theories, structures and management styles originating from academia - that used early industrial units as their research labs- worked for over a 100 years by managing the natural tension between capital (or, its surrogate, management) and labour for the success of the enterprise. They worked in large part because the management styles reflected the social structures of the day. Europe and America were emerging from feudal societies. Agrarian economies were morphing into industrial ones. Wealth creation was happening on an unprecedented scale. Classes were clearly structured and segregated. The management styles – paternalistic and patronizing - and hierarchical structures reflected the socio-economic fabric from within which the modern industrial businesses were being created. It was not out of the ordinary to find this hierarchy and class segregation manifest itself by way of separate toilets, separate eating areas, and working ambience with very distinct and differentiated experiences.

I remember a time when I had made a suggestion (this was part of a Suggestion Box Scheme ostensibly to generate employee involvement and the like) regarding the training of secretaries in PC based database and spreadsheet packages apart from the regular word-processing software so that they could contribute more to the businesses they were supporting while upgrading their own skills. The message I received back was illuminating in its cold bureaucratese:“Secretaries are not supposed to think”.

Societies have made remarkable progress over the past century or so as have organizations over the same period. Visible class differentiation based on the notions of management and labour of a bygone industrial era has, at least in the more evolved organizations, been erased. In some organizations, every one is called by their first name. Everyone eats, works and gets refreshed at common facilities. While these changes are good indicators, they still don’t reflect the changed nature of the dynamic equilibrium between management and labour in the knowledge economy. Here, the management mantra of meritocracy contends with historical aristocracy and organizations are found wanting. Yet organizations still remain stuck with the management lexicon, styles and structures reflective of the industrial age instead of confining them to the dustbins of history.

• “Human Resources”. Lets first start with this clinical and cold label.

The very term “Human Resources” is reflective of this Industrial economy thinking. It is reflective of the era where a human being was just another “resource”, a factor of production. Nothing more, nothing else. Rather like another input item of raw material. Just as the Materials function had the charter of sourcing material of acceptable quality at the lowest cost with minimum disruption to the assembly line, the “Human Resources” or HR department of “Industrial” businesses (“Industrial” in mindset terms) had the charter of procuring the minimum acceptable levels of labour quality at the lowest cost. In the knowledge economy of tomorrow (today?), the management of these “resources” has to be different from that of say, inanimate raw material! While some would argue that our BPOs and IT services produce output in an assembly line like environment of an industrial era business, it is also true that the high levels of attrition can be largely attributed to the drudgery and monotony of the assembly line approach.

• “People are our greatest assets”. Really? This well known rallying cry at several businesses needs scrutiny. Lets take a closer look.

An asset is say, a piece of machinery that is acquired for the purposes of creating output. It has a useful life of say, 5 years after it is assumed that the asset would have outlived its utility. The business therefore sets off a certain amount of money every year as depreciation charges as the cost of maintaining this machine. At the end of its useful life, the asset is valued at zero in the books of the company. Businesses therefore want to squeeze the most out of their assets in the minimum time before the assets become “worthless”. By claiming that people are the greatest assets, there’s an implicit clubbing of people along with the rest of the (non-human) assets in a company. This assumption leads businesses to squeeze the maximum out of their people in the shortest time at the least cost lest the employees too become “worthless” like in the case of any other asset. The implicit assertion therefore being: “We are powerless to prevent the descent of employees into a state of worthlessness!” But this treatment does not recognize the fact that people in a company are the only “assets” that don’t depreciate unless they are made to!

Of course, employees don’t just rust away or become obsolete like machinery. They leave their jobs or just attain a level of incompetence. But employee attrition and attainment of incompetence can be both reversed or dramatically slowed down unlike in the case of machines.

People are the only assets that become more valuable over time as they gain more knowledge, gains more exposure and awareness, skills and experiences. People are the only asset that follow the Law of Increasing Returns, i,e. the more they are invested in, they more they produce. But this reality is never recognized.

Since this reality is not recognized, the poor “HR” department spends all its waking hours and more in recruiting, salary benchmarking, competitive surveys of HR practices, and the like. Instead of focusing on these administrative jobs and roles, which should be handed over to general administration function, “HR” should be focused on making the investments that enhance the value of the employee. Training in soft skills (e.g. counseling, coaching, negotiation), domain capabilities (e.g. technology, specific industry verticals, cross-functional subjects), and exposure to new methods, practices, cultures, geographies. Providing opportunities for self-advancement, encouraging innovation, risk taking, devolving funds management and the like are other examples. Empowered and enlightened decision making cannot occur in hierarchy conscious organizations.

Every person who manages another or a group is a “HR” manager and should be responsible for making the investments and generating measurable output increases. The CEO is the # 1 HR manager of any company; After all, that’s the main job of the CEO: drive productivity and profitability with a happy set of employees. The “HR” function should be transformed into a department of coaches, mentors, counselors, trainers and the like who operate as team members of the line employees.

By renaming “Human Resources” to “People Function” or “Human Capital” will remain tokenisms unless the underlying structural issues are addressed. India has the world’s largest number of young people – the 2nd Midnight’s Children (aka those born on or after 1991) will become a majority of the workforce in the not too distant future. They will not be restrained by hierarchical structures, notions of class, or remain satisfied by paternalistic and patronizing management styles. They have choices and opportunities that are global in nature. They want to be empowered and are not the type to be eternally grateful to the organization for providing them a job. They view the relationship as a largely contractual – getting paid a market value for delivering certain value to the organization. This impending social change, in and as of itself, is a good enough reason to re-think and re-tool “HR” in order to continue to attract and retain people.

A new set of measures need to be evolved for determining the success of any new model. For example, on the input side, we can look at:
- Ratio of coaches, mentors, counselors (not administration oriented “HR”) to total employees
- Involvement of these coaches and mentors in project teams: this will give coaches an insight
into how teams actually work together; Individual contributions can be gauged; Team output
can be positively impacted
- Number of days of training in various areas conducted

On the output side:
- Number of new and innovative initiatives launched
- Employee perception of their superiors and company management style
- An employee “happiness” index? Would they recommend their workplace to others? How many recommendations have come in?
- Do employees feel empowered?
- Is attrition reducing? Is productivity increasing?
- Are employees receiving training in the areas that need improvement? Have employee competencies increased?

To enable this, people in the “HR” function must themselves need to be first made aware, trained, and exposed to a different number and variety of experiences. They must understand the business and the intertwined dynamics across functions. “HR” should be necessarily involved in all decisions and activities involving employees but as coaches, counselors, and trainers. “HR” should move away from being perceived as a “necessary evil” to a critical resource for ensuring employee satisfaction and improved contributions. The board downwards must start focusing on employee development and productivity and must therefore back the new improved version of “HR”.

Organizations need to bring out the “human” (ability) from their resources and focus on the “people” part of their greatest assets. We need to therefore disband organizational behaviours that are implicit in the usage of the term “HR”.
The above formed the gist of a talk delivered by Sanjay Anandaram at February 3rd event in Bangalore on “HR Branding” organized by the National HRD Network and ICFAI Business School.

The above formed the gist of a talk delivered by Sanjay Anandaram at February 3rd event in Bangalore on “HR Branding” organized by the National HRD Network and ICFAI Business School.

Investments or Expenses? - By Sanjay Anandaram

2009-02-09T21:29:00.000-08:00

In the tough economic times such as the one we’re currently facing, the pervasive and prudent mantra is to conserve cash, hunker down, reduce expenses and somehow survive till better times arrive. But then what expenses should one cut? Where should the costs be reduced? Should investments be stopped?

I’ve received mails from entrepreneurs asking the above questions. In order to answer these questions, it is important to understand the differences between the terms. Semantics aside, understanding of the terms will also help decide where to save and where not to. Lets take a simple example.

Your company decides to participate in a day long event for which 500 samples of your product are procured for Rs 5L. However, only 400 samples were handed out, since only 400 customers showed up, leaving 100 samples that could be used for another event next month. The costs incurred by your company is therefore Rs 5L while Rs 4L were the expenses for the event and the 100 unused samples worth Rs 1L are assets. Expenses therefore mean a cost that has been incurred while undertaking revenue generating activities. A cost may or may not be an expense, for example, in the case of land that your company acquires since the land does not get used up and depreciated. Computers purchased by your company will initially be recorded as assets on the balance sheet while their costs each year become depreciation expenses in the profit & loss statement as they get used in generating revenues.

Should technology costs be treated as an asset (capitalized) or should they be expenses as costs are incurred? Investments and assets are those costs that are expected to result in revenues over a future time period. This depends on the nature of the company’s business and how critical the technology development is for future revenues. For a software company building software IP, the technology can be largely capitalized. Sales costs for example are generally treated as expenses since the revenue impact is felt within the financial year. However, marketing costs are more difficult to segregate between an investment and an expense. Again, the nature of the business plays a role. For example, if the company is in the business of developing and creating brands, then a significant portion of marketing costs can be treated as investments while for other companies, they can be treated as expenses since results may be expected within the year. In a management consulting company, the biggest cost is the people cost. However, their intellectual property (patents, knowhow, processes) are their assets and management needs to decide how much they’ll invest in growing their IP based on their assessment of its revenue generating ability over a period of time.

So in these troubled times, what should a startup do? Since the first goal is to conserve cash it is important to only incur those costs that can be expensed against revenues. If there are existing assets, it is time to dust those assets and make those assets sweat to generate revenues. Many companies talk of their people being their greatest assets, so it should not be a surprise if making these assets work harder, longer and smarter to generate more revenues is one way of making “assets sweat!” In spite of their best efforts, if there’s no visibility of revenues in the foreseeable future companies shed their assets. Shedding assets could mean selling physical assets (buildings and land) to generate cash or letting go of people assets as companies cannot afford to keep incurring costs if these cannot be expensed against revenues.

As is obvious, serious consideration and judgement is required in reaching conclusions about whether to look at costs as investments or expenses and in estimating how and when revenues can be realized. Misrepresentation or erroneous classification can lead to inaccurate financial statements and to other very serious problems as the recent Satyam case has highlighted.

What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.